August 9, 2019

The Weekly Gist: The Premature Pigskin Edition

by Chas Roades and Lisa Bielamowicz MD

Wait, what? It’s football season again? Turns out that’s true, on both sides of the pond. At Anfield in northwest England tonight, Liverpool resumes their campaign to top the Premier League, taking on newly-promoted Norwich City in the official start of the new season. Meanwhile, we’re into week two of the NFL’s preseason, and our hometown Washington squad is already making a solid case for never watching another professional football game. May we just point out that it’s still early August…we’re just not ready for fall sports quite yet. The only civilized way to follow sports this time of year is poolside, with the radio tuned to a baseball game just low enough that you can barely make out what the announcers are saying. We’ll tune in to the other stuff next month, maybe.

THIS WEEK IN HEALTHCARE

What happened in healthcare this week—and what we think about it.

CMS will cover costly CAR-T cancer therapy nationwide 

On Wednesday the Centers for Medicare & Medicaid Services (CMS) announced that it will now cover an innovative class of cancer therapies known as CAR-T treatments, which “reprogram” a patient’s own immune cells to attack certain cancers. With the new policy, CMS promises to increase access to the treatments, covering them not only for FDA-approved indications for specific lymphomas and leukemias, but also for certain off-label uses approved by the agency. The coverage expansion is good news for providers, who have been forced to choose between shouldering the full cost of CAR-T or not offering the treatment at all. It is unlikely, however, that the payment will cover the full cost, estimated at between $375K and $475K per patient. In a recent interview CMS Administrator Seema Verma recognized the difficulty of creating a payment policy for this novel class of treatments. Commercial payers have shoehorned CAR-T, which involves a complex multi-stage process of cell extraction, extensive lab work to alter the cells, and reinfusion, into existing payment schemes for pharmaceuticals. The CAR-T payment saga highlights the conflict that can emerge when real innovation, delivered at a very high cost, collides with our complex and rigid third-party payment system. CMS’s move to expand coverage may not only improve access to lifesaving therapy, but also alter the industry’s approach to categorizing and reimbursing for these complex treatments.

Speculation of a merger with Anthem highlights unrest at HCSC 

This week a Forbes piece speculated that recent leadership shakeups at multi-state insurer Health Care Services Corp. (HCSC) could set the stage for a merger between the company and Anthem, the country’s second-largest insurer and largest operator of Blues plans. The article offered little evidence supporting rumors of a merger, which we believe are highly speculative. An Anthem-HCSC combination would likely come under intense scrutiny from regulators and would face challenges due to differences in the companies’ ownership structures (Anthem is a for-profit publicly traded company, while HCSC is a nonprofit mutual insurer owned by policyholders.) The move would also be inconsistent with Anthem’s recent growth strategies, which center around vertical expansion and growing its Medicare and Medicaid books of business. HCSC, which operates Blues plans in five states and is the country’s fourth largest insurer with 16M members, has largely stuck with conventional strategies focused on growing its traditional commercial market offerings, falling behind the more aggressive and diverse tactics of large for-profit insurers, but also smaller, more innovative Blues plans like Cambia, Inc. and Blue Cross Blue Shield of North Carolina, which announced plans to combine earlier this year. Reports suggest the HCSC board became frustrated with outgoing CEO Paula Steiner’s approach, which it viewed as too cautious amid rapid industry consolidation and disruption. HCSC is at a critical inflection point and must create a strategy that moves the company away from its reliance on broad network offerings for the group market, or face being overtaken by competitors who are aggressively expanding into other market segments and combining health plan, care delivery and technology assets into consumer-focused product offerings.

A leading pharmacy retailer slims its portfolio

Walgreens announced this week it will close 200 stores across the US as part of the company’s plan to transform care and cut costs. While that number represents less than 3 percent of its 9,650 stores, the company is also closing 750 of its recently purchased Rite Aid stores and 200 stores in the UK. Walgreens has lagged behind rival CVS in expansion into care delivery and insurance products, pursuing a strategy of partnerships rather than acquisitions. The company recently announced partnerships with insurer Humana, Microsoft, primary care providers and LabCorp to bring new healthcare services to its customers. Meanwhile, CVS has been aggressive in its expansion, building on its acquisition of Aetna to create a care platform that includes management of high-cost services like dialysis and joint replacement. And CVS is looking to appeal to a growing and profitable Medicare Advantage market with its in-store HealthHUBs and a subscription delivery service similar to Amazon Prime. Just a few years ago, Walgreens seemed the more forward-looking of the two competitors, arranging with provider organizations to launch accountable care organizations, announcing co-branding deals with leading local health systems, and unveiling plans to get into the care management business. Since its tie-up with Alliance Boots, however, and its subsequent abortive acquisition of Rite Aid, the pharmacy retailer seems to have been in catch-up mode. Walgreens current partnership strategy, while potentially less costly than CVS’s approach, runs the risk of moving too slowly in a healthcare market that’s rapidly reorienting around vertically-integrated competitors.


GRAPHIC OF THE WEEK

A key insight or teaching point from our work with clients, illustrated in infographic form.

Changing our lens on key strategic decisions

Last week we shared a graphic we use with members to illustrate the contrast between the way incumbent organizations view the demographic forces shaping healthcare with how fast-moving disruptors are addressing those trends. In short, we see traditional players coping with demographic change in ways intended to protect their legacy economics, while new entrants look to aggressively integrate and seize the moment to build new models of care designed to maximize consumer value and build long-term consumer loyalty. As this week’s graphic illustrates, we believe incumbents must increasingly adopt a similar lens, and reframe major strategic decisions not around what works best for today’s fee-for-service model, but what creates the most value for patients and consumers. This shift in perspective will lead to different, more productive answers to the tough questions organizations are faced with: How should we think about growth? How should we align the clinical enterprise? What value can we create from “systemness” and integration? In short, we worry that incumbents are too timid for today’s environment, and they run the risk of being left behind as the market shifts toward a consumer-driven model. By approaching key strategic decisions with the end user of healthcare in mind, health systems, physician groups, insurers, and other incumbents can regain the initiative, in our view, and set themselves up for success in a changing industry.


THIS WEEK AT GIST—ON THE ROAD

What we learned this week from our work in the real world.

Addressing physician leaders’ concerns about Millennial colleagues 

Lisa:
When I present to physician leaders, I always know the question is coming, and if it hasn’t been asked by the time I reach the topic of physician compensation, that’s when I know it will hit: “Well, what about Millennial doctors? They don’t want to work as hard as the rest of us. To them, it’s just a job.” Murmurs and nods of agreement often spread across the audience—since groups of physician leaders are still largely comprised of grey-haired Baby Boom and Gen-X doctors. At a recent meeting, a physician in his late 60s asked: “There’s no doubt young doctors today are different. The question I have is can we make them more like us, or will they shape the profession of medicine around what they want?” I’d bet with the latter.The rising class of millennial doctors is more diverse, bringing the first medical school classes where women outnumbered men. And their ranks are rising quickly. Millennial doctors now outnumber Baby Boomers (we Gen X-ers never stood a chance) in two large health system medical groups I visited in the past month. This influx of younger physicians may make transformation of clinical practice easier in some ways. Millennial doctors are data-driven, less resistant to clinical standardization, and tech savvy. Most prefer working in a team environment, and very few want to manage a solo or small practice. And they look to build relationships with patients that are partnership-oriented rather than paternalistic.

But some elements of the hierarchical and regimented structure of physician training are difficult for them to swallow. Telling a new doc they’ll be taking call for their first ten years of practice because “that’s how we’ve always done it” may not get results from a generation motivated by purpose. If that purpose isn’t there, they’ll switch jobs until they find it. The flat structure of clinical practice doesn’t provide regular opportunities for promotion, which can be frustrating for millennials used to recognition. And yes, in general, younger doctors want to work less but be paid the same. This is just one symptom of the transition from traditional, individualistic practice towards technology- and standard-driven clinical care—physician leaders must navigate the changing expectations not only of how doctors spend their time, but of what it means to be a physician.

Turning the page on the old strategic plan

Chas:
As I’ve mentioned before, a number of the health systems we work with are in the midst of relaunching their strategic plans, having pegged their last big planning efforts to the year 2020. (Clever plays on “20/20 vision” abounded in the world of strategic planners back in 2015.) For many organizations, the discipline of constantly revisiting and updating the strategic plan, which is a good and necessary habit, has reduced the significance of a plan “ending” as a strategic milestone. Despite that, one of our member systems has been more deliberate about the process of transitioning from one five-year plan to the next. This week, we spent time at their annual leadership retreat, helping them gear up for the coming 2025 plan, but also helping celebrate the end of their 2020 strategy. It struck me as a wise choice, taking time to look back and reflect on what did (and didn’t) work out across the past five years, and acknowledge the hard work of the past half-decade. Not only did the retreat provide an opportunity to call attention to the system’s achievements, but it also let leaders explicitly turn the page on the past, recognizing together that the environment has changed (a lot) over the last five years, and that the next five years are likely to look significantly different. The skills, strategies, and metrics that brought them to where they are won’t suffice for the challenges ahead—new approaches and new thinking are necessary. Taking time to create a shared sense of an ending and a new beginning, while re-centering the leadership team on the cultural and mission-driven principles that will endure regardless of new priorities, provides a sense of commitment and urgency to the planning process that lifts it up from the mundane details involved.


BINGE WATCH ALERT

We would’ve worked harder, but we watched this instead.

If you’re in need of a new show to binge during your beach vacation, or just looking for a way to beat the August heat with some air-conditioned couch time, may we suggest Years and Years, a six-part, HBO-BBC co-production that takes today’s mélange of troubling headlines and asks, “What happens next?” Spanning the coming 15 years, the show follows the Lyons family, a Manchester, UK version of a television-style Modern Family, through the turbulent events of a dystopic near future. Tugging on the loose threads of today’s political, economic and social trends, the show depicts the steady unraveling of the status quo: the rise of a fascist dictator in Britain, a nuclear confrontation between the US and China, the emergence of a new class of transhuman cyborgs, climate catastrophe that displaces hundreds of thousands, and the collapse of the world banking system. All shocking events, but all occurring in a way that seems totally normal to the outrage-numbed characters living through them. What happens next, according to the show, is just more and more of the same, but at a pace and intensity that gets worse as the years go on, an unstoppable defining-down of “normal”. The show has important points to make about today’s world but makes them in a way that refrains from preachiness or judgement—even the worst of the “bad guys” at the center of future events seem perfectly reasonable and rational. It’s a clever concept, well executed in six plot-packed episodes. Or, for the Director’s Cut, you could just watch cable news instead.


WHAT WE’RE READING

Stuff we read this week that made us think.

A call for doctors to organize

Writing this week in the New Yorker, digital healthcare evangelist Dr. Eric Topol asks a provocative question: “Privately, doctors feel despair about their appalling working conditions and the deteriorating doctor-patient relationship. But there have been no marches on Washington, no picket lines, no social-media campaigns…Why aren’t doctors standing up for themselves and their patients?” Today the profession is fragmented and “balkanized” without a unifying voice or advocacy platform. The American Medical Association, which once represented three quarters of the nation’s doctors, now represents fewer than a quarter. More doctors identify with specialty societies, many of which, Topol points out, operate as trade guilds primarily focused on protecting the financial interests of their members. As a unified force, physicians could be powerful advocates for policies that promote patient health and financial security. It’s unclear whether Topol feels doctors should organize into a traditional labor union model to reassert control over change in practice—a move that’s rare among high-income, high-status professions, and tends to be a sign of the “industrialization” of the role (think of the parallel with airline pilots, who unionized as their jobs became more and more standardized). For maximum impact, any “union” of doctors must strike the balance between social and political advocacy and the inward-focused issues of practice—with patients as the guiding force for both.

The lucrative economics of Medicare Advantage

As we’ve repeatedly pointed out in our work, the future of Medicare is Medicare Advantage (MA). With more than a third of all seniors enrolled in private Medicare coverage already, and experts estimating that as many as 70 percent of Medicare beneficiaries will ultimately sign up for MA, it’s fair to say that we’re in the midst of a slow, steady privatization of the Medicare program. And not only is the Trump administration encouraging the growth of MA enrollment, but now leading Democrats running for President are proposing coverage expansions built around MA buy-in. Judging from a fascinating new report out from researchers at the Kaiser Family Foundation (KFF) this week, private insurers in the MA business must be licking their chops. Their analysis compares gross margins per covered person across commercial group, individual, and MA products. On average, between 2016 and 2018, an MA life was nearly twice as profitable (in absolute dollars) as a group market life, and more than twice as profitable as an individual market life. Although loss ratios are similar for all three books of business (about 85 percent), the fact that MA insurers pay providers rates similar to Medicare fee-for-service but continue to get subsidy-enhanced premium payments from the Federal government means the dollar value of an MA enrollee is much higher than for a commercial member. The upshot? Should Democrats run the tables in the 2020 election cycle, and move forward with plans for coverage expansion, we think the economics of MA expansion will ultimately keep insurers from fighting too hard against MA buy-in proposals. Insurers will be just fine under MA expansion—it’s the providers who will likely take the biggest hit under any Medicare coverage extension.

A challenge to Walmart’s credibility in healthcare

Retail giant Walmart’s complicated history with firearms was again in the news, after last weekend’s horrific mass shooting at a Walmart store in El Paso, TX. A piece in the Washington Post this week provides a useful review of how Walmart’s policies regarding the sale of guns in its stores has evolved over the past several years. Lagging other general merchandise retailers, Walmart stopped selling handguns only 26 years ago, facing concerns over rising gun violence. Given the Walton family’s affection for hunting and shooting sports, however, the chain has resisted calls to cease selling shotguns and rifles, although it did eliminate guns from two-thirds of its suburban-area stores in 2006 based on declining sales trends. However, facing stagnant sales in the wake of the 2009 recession, the retailer reintroduced guns in many of its stores, and has since seen gun sales spike in the wake of mass shootings and increased media attention on gun control issues. While sales figures are not yet available, it’s likely that, ironically, last week’s shootings at the El Paso Walmart store will again boost gun sales for the chain, as shoppers rush to purchase more weapons and ammunition in anticipation of any potential tightening of gun laws.

We believe gun violence is an urgent public health issue, and that more needs to be done to ensure that weapons don’t fall into the wrong hands. As Walmart continues to stake out a growing presence in the healthcare industry, with a massive pharmacy operation, a growing clinic business, and rumors of the potential acquisition of a health insurer, we’re disappointed that the retailer remains committed to selling firearms. Witness the bold (and economically risky) decision by CVS Health several years ago to stop selling tobacco products—a move the pharmacy chain felt necessary to credibly present itself to the public as a healthcare company. We hope Walmart will show similar courage in the months ahead. For now, however, the most the retail giant seems willing to do is remove store displays showcasing violent video games, a product that has repeatedly been shown to have little impact on the prevalence of real-world gun violence.


That’s all folks! We know many of our readers are on vacation this time of year, but if you’re not lucky enough to be “OOO”, or you’re just keeping an eye on email from the beach, we appreciate you taking the time to read our work. Let us know what you think—we’d love to hear your comments, feedback and suggestions, and even how your summer holidays are going. Don’t forget to share this with a friend or colleague and encourage them to subscribe, too!

As always, please let us know if there’s anything we can do to assist in your work. You’re making healthcare better—we want to help!

Best regards,

Chas Roades
Co-Founder and CEO
chas@gisthealthcare.com

Lisa Bielamowicz, MD
Co-Founder and President
lisa@gisthealthcare.com